APL: 3QFY11 earnings lifted by higher volumes

3QFY11 earnings in line with our expectations: APL posted profit after tax of PKR1bn (EPS: PKR14.60) during 3QFY11, up 21% YoY. 9MFY11 earnings at PKR2.8bn (EPS: PKR39.8) were up 18% YoY.

Volume expansion drove 3QFY11 gross profits: Gross profit during 3QFY11 was up 20% on QoQ and YoY basis, primarily due to 15% YoY growth in volumes, where HSFO and Mogas showed stellar volume performance. Further support came from gross margins, which edged up 4% on both QoQ and YoY basis.

Commission and handling income grew by 46% YoY: 67% YoY growth in other operating income during 3QFY11 was mainly driven by more than two fold increase in penal interest income on overdue receivables (though offset by higher interest cost on supplier credit), further helped by 46% YoY increase in commission and handling income. Investment income, on the other hand, at PKR221 was down by 3% YoY, due to 27% YoY lower cash balances and short-term investments during 3QFY11.

Investment perspective: We have marginally tweaked our volume and margin estimates, raising our FY11-12E EPS by 5-7%. We have also rolled forward our discounting timeline to Jun-12 from Dec-11, which raises our PT for APL to PKR450/share. At yesterday’s closing price, the scrip trades at an attractive FY12 PER of 6.1x and offers an upside of 22% to our Jun-12 PT of PKR450/share. BUY

Volume expansion drove 3QFY11 gross profits

Gross profit during 3QFY11 was up 20% on QoQ and YoY basis, primarily due to 15% YoY (and a similar QoQ growth) in volumes coupled with higher margins on HSFO. 23% YoY volumetric growth in deregulated products was mainly driven by 62% YoY higher FO sales, which offset

the impact of 29% YoY decline in asphalt sales. Regulated product volumes were up 7% YoY during 3QFY11, led by 102% YoY higher MS volumes, whereas HSD sales weakened by 3% YoY, despite 13% QoQ gains. Further support to earnings came from higher margins, as gross margin per ton was up 4% YoY (+4% QoQ) due to increase in HSFO margins on higher prices.

Commission and handling income grew by 46% YoY

114% YoY growth in other income during 3QFY11 was primarily driven by 46% YoY increase in commission and handling income, which contributed PKR3.1/share or 22% to 3Q’s earnings. 168% YoY growth in penal interest income on overdue receivables was matched by 153% increase in finance cost expensed on overdue supplier credit. Thus net penal interest income was a mere PKR13mn during 3QFY11 as against a mere PKR3mn during 3QFY10. Investment income, on the other hand, at PKR221mn was down 3% YoY, primarily due to 27% YoY lower cash balances and short term investment during 3QFY11. The reason behind lower cash balances was the steep rise in receivables from Attock Gen, besides higher inventory levels.

Investment perspective

Due to recent changes in sale mix, we have slightly tweaked our volume and average margin estimates, which lead us to increase our FY11 & FY12 EPS estimate by 7% and 5%, respectively. We have also rolled forward our discounting timeline to Jun-12 from Dec-11, which raises our PT for APL to PKR450/share (+7%). At yesterday’s closing price, the scrip trades at an attractive FY12 PER of 6.1x and offers an upside of 22% to our Jun-12 PT of PKR450/share. BUY

Economic & Political News

12% rise in power tariff during 2011-12

The government is likely to raise power tariff by a maximum of 12% during the next fiscal aimed to minimize the differential between the existing tariffs of Discos’ and cost recovery, well-informed sources told Business Recorder. The government recently increased power tariff of Discos by 2% across the board and 2% is expected next month.

FDI falls 28% in July-April 2010-11

Pakistan’s foreign direct investment (FDI) fell 28% to USD1.23bn during the 10 months of fiscal year 2010-11. The foreign portfolio investment (FPI) surged 749% to USD30mn in the same period to settle aggregate foreign investment at USD1.53bn in July-April 2010-11, State Bank of Pakistan (SBP) reported on Monday.
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